GST ruling on $34m Qantas kept from no-show customers

Peter Martin2 Oct 2012, 9:26 a.m.

THE High Court will rule today on whether Qantas can keep an extraordinary $34 million it has collected in GST from customers who did not show up, in a landmark judgment that hinges on what exactly is a service.

GST ruling on $34m Qantas kept from no-show customers

Windfall ... Qantas "would have collected goods and services tax but not passed it on on the ground that it did not supply a service", said GST specialist Gina Lazanas.

THE High Court will rule today on whether Qantas can keep an extraordinary $34 million it has collected in GST from customers who did not show up, in a landmark judgment that hinges on what exactly is a service.

The Tax Office says Qantas and its subsidiary Jetstar owe $26.6 million in GST they collected on forfeited flights in the first eight years of the tax.

Qantas owes a further $7.6 million in GST it collected on tickets for which customers never bothered to claim refunds.

The airline says it cannot owe the money because it did not supply a flight, meaning it did not supply a service. The Tax Office says the fact that Qantas kept the fares and persuaded its customers it had done enough to keep the fares meant it did supply a service of some kind.

The Tax Office submission says the definitions of the words "supply" and "consideration" in the GST act are deliberately broad - "as wide as language can make them".

Qantas barrister Roderick Cordara told the High Court in June that "in the real world", when customers put down the phone after speaking to travel agents and are asked what happened, they say something like: "I have just booked my flight to Melbourne."

"They do not say: 'I have just made an agreement that Qantas will hold itself ready for a period, in case I turn up.'"

But GST specialist Gina Lazanas, of Balazs Lazanas & Welch, said the Qantas position was complicated by it holding on to forfeited airfares as if it had fulfilled the terms of a contract.

Should Qantas win today, convincing the High Court that it did not provide a service, Ms Lazanas said it could face a class action from customers wanting their money back.

"It would be a windfall to Qantas. It would have collected goods and services tax but not passed it on on the ground that it did not supply a service," she said. "I could imagine a litigation funder getting involved."

Hotels, tour operators and other businesses that sold and charged GST on non-refundable tickets would be watching the case with interest.

The government twice attempted to close what it fears might be loopholes regarding the payment of GST where the supply of services is in doubt, the most recent being draft legislation released last week.

"A lot of people want clarity. I think Qantas might be doing this for clarity," Ms Lazanas said.

The High Court last year dismissed an appeal by the maker of an Italian delicacy known as Mini Ciabatte on the basis that it was a "cracker", and subject to GST, rather than "bread", which would have been exempt. At issue was whether the product contained yeast and was made with a lamination process.

Federal Court judge Richard Edmonds said the fact that such an issue ended up in the High Court made a mockery of the prophecy made by the former treasurer Peter Costello that the GST would simplify the Australian tax system.